Harmonizing the Destination Control Statement: What You Need to Know

On August 17, 2016, the Bureau of Industry and Security and the Department of State published final rules (here and here) to harmonize the Destination Control Statement (DCS) required under §758.6 of the Export Administration Regulations (EAR) and §123.9 under the International Traffic in Arms Regulations (ITAR) respectively. As part of Export Control Reform (ECR) efforts, the agencies have sought to harmonize regulatory provisions that are intended to achieve the same purpose. The DCS is one example of an area where interagency coordination should reduce the burden on exporters.

The purpose of the DCS is to notify consignees and end users that the shipment is subject to U.S. export controls and that diversion contrary to U.S. law is prohibited. Prior to the final rule, the EAR required exporters to include a DCS on certain export control documents while the ITAR had a similar requirement but utilized slightly different verbiage. The ECR initiative has led to an increased number of shipments featuring both ITAR- and EAR-controlled items. The harmonized DCS aims to simplify export clearance requirements and address this issue so exporters don’t have to determine which DCS to use.

Since the proposed rule was posted on May 22, 2015, additional changes have been made to further harmonize the two statements and provide greater clarity based on public comments received. Here’s what you need to know:

• The DCS requirement is limited to the commercial invoice. Once the final rule enters into effect, exporters will no longer need to include the DCS on the air waybill, the bill of lading, or other export control documents.

• Under the EAR, a DCS is required for any shipment of tangible items from the U.S. of any item subject to the EAR, including exports authorized under No License Required (NLR).

• A DCS is not required for shipments of only EAR99 tangible items or items exported under License Exceptions BAG or GFT.

• For shipments of 9×515 or “600 series” items exported in tangible form, the Export Control Classification Number (ECCN) of each item must be included on the commercial invoice. Although not required, BIS considers it a best practice to list all ECCNs on the commercial invoice.

• For shipments under the ITAR, you must also specify the country of ultimate destination, the end-user, and the license or other approval or license exemption citation on the commercial invoice.

• In situations where shipments of USML items and items subject to the EAR are shipped pursuant to a Department of State license or approval, the U.S. exporter must provide the end-user and consignees with the appropriate ECCN or EAR99 designation of the items included in the shipment. However, this need not be included in the commercial invoice. An exporter is not required to provide the specific USML category for the items included in the shipment.

The final DCS language applicable under the ITAR and the EAR is as follows:

These items are controlled by the U.S. Government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. Government or as otherwise authorized by U.S. law and regulations.

As you can see, the revised DCS does not include EAR-specific language, but rather adopts text that is equally applicable under the ITAR. For additional clarity, the term “authorized” includes exports, reexports, and transfers (in-country) designated under a NLR authorization, and “country of ultimate destination” means the country specified on the commercial invoice where the ultimate consignee or end user will receive the items as an “export.” For example, if the ultimate consignee is a distributor, the country of ultimate destination is the country in which the distributor is located.

BIS expects to publish FAQs on the new requirements in the coming weeks. The final rules become effective on November 15, 2016. Exporters should use this three month implementation period to take any necessary actions needed to modify their export compliance procedures and train the proper personnel.